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The Pros and Cons of Franchises

If you’ve always dreamed of going it alone and starting your own business, you’re in good company.  Here in the UK, we are a nation of small businesses.  In fact, SMEs (small to medium enterprises) account for 99% of all business in the UK and 60% of all private sector employment, so they represent a really vital part of our economy.  SMEs have been on the increase since 2000 and the majority of new businesses have been non-employing companies.  If you feel ready to take the plunge, you may have considered buying a franchise business.  After all, this seems like an easy entry for those without prior experience in managing a business.  Today we’re going to take a look at the pros and cons of buying a franchise so that you can think about it at your leisure and make an informed decision on whether or not this is the right way forward for you.

ADVANTAGES;

  • The risk of the business failing is reduced as the business is based on an already proven concept – you can check how well the other franchises are doing when making your decision.
  • The products or services you offer will already have an established market share which means that you don’t have to carry out any market testing.
  • As a franchisee, you will be able to use a recognised brand name and trade mark.  You’ll also benefit from any advertising or promotions carried out by the owner of the franchise (the franchisor).
  • You don’t need experience as the franchisor will provide you with training to ensure that you have the knowledge and skills necessary to operate the franchise.
  • The franchisor will give you support, this is usually in the form of a complete package which includes training, help setting up the business, a manual on how to run the business and ongoing advice when you need it.
  • A franchise allows a small business to compete with big business as there will be a pool of support from both the franchisor and other franchisees.
  • Financing the business may be easier as banks are more likely to provide funding to buy a franchise that enjoys a good reputation.
  • You will have exclusive rights in a specific territory, reducing competition.
  • You will have the advantage of sharing ideas with and getting support from other franchisees in the network.
  • Relationships with suppliers have already been established.

DISADVANTAGES:

  • The start-up costs may be higher than you expect – as well as the initial purchase costs of the franchise, you will be paying continuing management service fees and you may have to agree to buy products from the franchisor.
  • A franchise agreement usually contains restrictions on how you can run the business – you may not be able to make changes necessary to suit your local market.
  • You will be subject to ongoing franchisor monitoring which may be restrictive or intrusive.
  • Other franchisees may damage the brand reputation of the franchise.
  • The franchisor may go out of business.
  • You may find it difficult to sell your franchise should you wish to do so – you can only sell it to somebody who is approved by the franchisor.
  • The inflexible nature of franchises could hamper your ability to introduce changes to the business to respond to the market or increase the business.
  • All profits (a percentage of sales) are likely to be shared with the franchisor.